Credit Union Democracy in Action

In August 2002 my credit union, Patelco, which is state-chartered in California, voted to convert its deposit insurance from the federal NCUSIF to ASI, a cooperative private insurer.
As you can imagine, this was a


In August 2002 my credit union, Patelco, which is state-chartered in California, voted to convert its deposit insurance from the federal NCUSIF to ASI, a cooperative private insurer.

As you can imagine, this was a very big step - repeatedly, American citizens have said they welcome federal deposit insurance and that it gives them a sense of security.

But at Patelco we had some $480 million in deposits that were not insured. This was more than 20 percent of our deposits. Other than the notion that this showed very substantial confidence on the part of our depositors in Patelco as a safe and sound institution, the fact remained that these deposits were uninsured. The reason, of course, was that the federal government restricts its deposit liabilities to $100,000 per account.

Beginning two years ago, a committee of our Board studied whether we should drop federal deposit insurance for private insurance that would have broader coverage and fewer restrictions. The Board committee and then the Board were very diligent about their work. Ultimately, at our regular planning session last April the Board voted unanimously to allow the membership to vote on whether or not to make the conversion.

Thus the stage was set for our referendum, and we proceeded in accordance with NCUA regulations on such votes. These stipulate that 20 percent of the membership must cast ballots. Accordingly, we mailed votes to 176,000 members, somewhat lower in number than our actual membership owing to the fact that children could not vote and so on.

We allowed members to return their ballots by mail or in the branches or to cast their votes over the Internet.

The question, to put it succinctly, was Should Patelco choose ASI as its deposit insurer. ASI is a private insurer, whose service insures $250,000 per account with no limit to the number of accounts insured for any one member.

We received ballots from 66,755 members, far in excess of the 20 percent, or approximately 38,000 votes, required by federal regulations.

Of the 66,755 votes received, 40,734 were Yes; 26,271 were No. Thus the voting members approved the conversion by a vote of 61 to 39 percent.

When NCUA received the proper paperwork from us, it made approval of the conversion in one hour.


What can we learn from this?
For one, it means the dual chartering system is alive and well in California. In many states in this country, state law requires that state credit unions use federal insurance. There is no possible choice.

But California, like federal law itself, allows for another option. This option allows for all the benefits of competition: better ideas bubbling up, inherent cost controls, and an inherent desire to improve service.

So kudos for California, and other states that allow an insurance option to state-chartered credit unions. Such states allow for a more robust and vital credit union movement within their borders.

Second, our experience demonstrates credit union democracy. This action was not the effect of management, or of the Board. This was an action examined and voted on by the membership. The vote was very public and very considered.

Third, it showed the Board was in touch with the membership. There is often some doubt in credit unions about whether or not this is so. Membership grows and Boards represent tens of thousands of members. In the case of this experience and this Board, it can now be said that the Board very well sensed the inclinations of the members. It thought they would welcome the vote and very well might welcome the conversion. They were right.

At the same time, the Board would very well have accepted a different verdict and worked to align itself with member sentiment.

But the point is that members are in control. They are the ones who best know what is going to be best for them. And we need a dual chartering system that allows them to take their credit unions in the directions they think best.

Here was an instance of that. It is a good sign for every credit union member in the nation.




March 3, 2003


  • comment2,
  • So if the membership polls to drop loan rates to 25 over the US treasury and share rates 25 over, you would do that? Oh ridiculous.
  • The ballot question was misleading. It should have included clear language stating that the insurance would no longer be backed by the US government.
  • There are 130,000 members who didn't vote who probably don't know the impact of converting to private insurance. The dual chartering argument isn't valid.
  • Patelco is still subject to examination from the state of California as its regulator and ASI as its insurer.
  • While mildly interesting, this article is not very timely considering it has been more than 6 months since the conversion. I might think differently if the article offerred some new information, but it does not.
  • Of course I suppose now they are not subject to examinations from NCUA either. But I am sure that had no bearing.